Earned Value Management – Step 1

There is much to understand and a number of formulas to know in order to apply Earned Value Management (EVM). It’s often the most difficult concept for project managers to learn when they are studying for their PMP exam if they have not applied it in their work. The very first step is gaining a conceptual understanding of what this thing is that we called Earned Value. Earned Value is the idea that even though we have not completed the work, there is value to the amount of work we have accomplished. How do we define value? It’s usually by money, such as in dollars, but it could be by hours of labor also. Here is the basic earned value formula: BAC * (work completed / total work). BAC stands for Budget at Completion, which it the total budget for the project. This is multiplied by the percentage of work completed.

Now for the examples—if Patty’s budget for her party is $1000, and the work is half done, what is her earned value? It’s $500, because half the work is done and half the budget is $500.

If Carl’s car re-design project has a budget of $4 million dollars, and he is one-fourth done, what is his earned value? It’s $1 million, because 25% of the work is done, and 25% of the budget is $1 million.

In this example, you aren’t told the percentage of work completed—that must be calculated. Shelly has $20, and wants to use it to find 10 seashell souvenirs to buy. So far, she’s bought 2 seashells. What is her earned value? It’s $4. BAC * (work completed / total work) = $20 * (2 seashells/10 seashells) = $4. The project work is to buy 10 seashells, so far she’s bought 2, so the work is 20% complete. 20% of $20 is $4.